Lana Powell is seeking part-time employment while she teaches school. She is considering purchasing technical equipment that will enable her to start a small training services company that will offer tutorial services over the internet. Lana expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter, she expects demand to stabilize. The following table presents the expected cash flows. Year of Operation Cash Inflow Cash Outflow 2010 $6,500 $4,000 4,500 3,000 7,000 4,200 4,200 7,000 In addition to these cash flows, Ms Powell expects to pay $7,300 for the equipment. She also expects to pay $1,200 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $750 salvage value and a four-year useful life. Ms Powell desires to earn a rate of return of 10 percent. What is the Net Present Value of the investment opportunity? (Round computations to the nearest whole penny). 2011 2012 2013
Lana Powell is seeking part-time employment while she teaches school. She is considering purchasing technical equipment that will enable her to start a small training services company that will offer tutorial services over the internet. Lana expects demand for the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance. Thereafter, she expects demand to stabilize. The following table presents the expected cash flows. Year of Operation Cash Inflow Cash Outflow 2010 $6,500 $4,000 4,500 3,000 7,000 4,200 4,200 7,000 In addition to these cash flows, Ms Powell expects to pay $7,300 for the equipment. She also expects to pay $1,200 for a major overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $750 salvage value and a four-year useful life. Ms Powell desires to earn a rate of return of 10 percent. What is the Net Present Value of the investment opportunity? (Round computations to the nearest whole penny). 2011 2012 2013
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Multiple Choice
O
O
$6,767
($251)
$1,211
$229
Transcribed Image Text:Lana Powell is seeking part-time employment while she teaches school. She is considering purchasing technical equipment that
will enable her to start a small training services company that will offer tutorial services over the internet. Lana expects demand for
the service to grow rapidly in the first two years of operation as customers learn about the availability of the Internet assistance.
Thereafter, she expects demand to stabilize. The following table presents the expected cash flows.
Year of Operation
Cash Inflow
2010
$6,500
4,500
7,000
7,000
In addition to these cash flows, Ms Powell expects to pay $7,300 for the equipment. She also expects to pay $1,200 for a major
overhaul and updating of the equipment at the end of the second year of operation. The equipment is expected to have a $750
salvage value and a four-year useful life. Ms Powell desires to earn a rate of return of 10 percent.
What is the Net Present Value of the investment opportunity? (Round computations to the nearest whole penny).
2011
2012
2013
Cash Outflow
$4,000
3,000
4,200
4,200
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